ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, August 10, 1996 TAG: 9608120032
SECTION: BUSINESS PAGE: A-6 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
The settlement of an investigation of Nasdaq will accelerate a housecleaning in the electronic stock market, probably making it a fairer place for investors.
But the changes that grow out of the settlement with the Securities and Exchange Commission - and other pending reforms - could have a severe unintended consequence: making stocks harder to find.
Critics warned Friday that dealers will see tighter profits trading stocks in smaller companies and shun the kinds of securities that helped make Nasdaq the world's second largest stock market.
``What's going to affect the public is if I'm not there to put my capital up for second-and third-tier stocks. Then the public will be up the creek without a paddle. That's the real concern,'' said E.E. ``Buzzy'' Geduld, president of Herzog, Heine, Geduld Inc., a major Nasdaq dealer.
Those concerns emerged a day after the SEC brought its milestone case against the Nasdaq stock market and its parent, the National Association of Securities Dealers Inc. The case was the second major enforcement action this summer against Nasdaq.
The NASD agreed to settle the SEC's 18-month case by accepting a censure, agreeing to expand its enforcement budget by $100 million, and undertaking more than a dozen specific reforms aimed at strengthening the market's regulation.
Rules pending before the SEC also will radically change handling of customer orders on Nasdaq, which the SEC argues is the next leap to improve the market and lower trading costs for investors.
The SEC's report highly criticized the conduct of Nasdaq dealers, particularly for colluding to keep buy and sell prices artificially wide, which served to increase trading costs for investors. The dealers' conduct meant investors pay high prices to buy a stock and get low prices when selling.
The SEC case followed a Justice Department investigation of price fixing involving two dozen Nasdaq dealers last month. A settlement led to increased monitoring of brokers.
The agency wants to go further with a set of rules that would have customer orders directly mingle with the prices quoted on Nasdaq computer terminals. That could sharply reduce investors' trading costs by narrowing the gap between the buy and sell prices.
LENGTH: Medium: 52 linesby CNB